We will now analyze the historical returns of your chosen stocks. You may choose any time period and frequency you deem suitable, but make sure that all of your returns are reported as annualized rates. You will want to use the adjusted closing price to automatically account for the eects of dividends and splits. (a) (10) For each stock as a well as a suitable market index, report the mean and standard deviation of returns. (b) (10) Find the variance-covariance matrix of the two stocks and the market index, and report the beta of each stock. (c) (10) We now consider the benets of diversifying by constructing a portfolio consisting of both of your stocks. For each value of x = f0; 0:1; 0:2; : : : ; 1g, consider a portfolio with a proportion x of your wealth invested in your rst stock and 1x invested in the second, and compute the mean and standard deviation of the portfolio return. (d) (10) Assume a risk free rate of rf = 0:01. In a well-diversied portfolio, only market risk matters, so the risk premium of any stock should be proportional to its beta. If this were true, what should be the returns you expect to earn from your two stocks, and how does this compare to their historical averages?